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Depreciable life refers to the estimated amount of time that a piece of property can generate income. This is used to calculate how much depreciation and amortization deductions can be taken. Essentially, it's how long something can be used before it loses value and needs to be replaced. Another term for depreciable life is useful life.
Definition: Depreciable life, also known as useful life, refers to the estimated period during which a depreciable asset is expected to generate income. This period is used to calculate the amount of depreciation and amortization deductions.
Example: Let's say a company purchases a machine for $10,000 that has a useful life of 5 years. The company can deduct $2,000 per year ($10,000 divided by 5 years) as depreciation expense on their tax return. After 5 years, the machine is considered fully depreciated and has no remaining value.
Another example could be a building that has a useful life of 30 years. The owner of the building can deduct a portion of the building's cost each year for 30 years until the building is fully depreciated.
These examples illustrate how the depreciable life of an asset is used to calculate the amount of depreciation expense that can be deducted each year. It is important for businesses to accurately estimate the useful life of their assets in order to properly calculate their tax deductions and plan for future asset replacements.